The biggest problem facing Illinois is the public pension fund problem. I don’t care what the “official” number is for the degree to which it is underfunded. I can guarantee that even without marking-to-real-market the illiquid investments like private equity funds, derivatives, commercial real estate trusts and other assets that do not have truly visible markets, collectively the public pension system in Illinois is at least 60-70% underfunded. Then apply a realistic assumed actuarial rate of return on assets, which would be lower than the current assumption (likely 7.5% ad infinitum) and the underfunding goes to 80%. The problem is unsolvable without a complete and drastic restructuring.

I was in a Lyft ride today and the driver happened to be from the northwest suburban area of Chicago. There’s a lot bad things happening in that State that are not reported in the mainstream media. All road public road work has been halted except toll roads. The gun violence has worked its way from the South Side up through downtown into the Gold Coast neighborhood and is winding its way north.

He said that his old house at peak prices in northwest burbs was worth over $500k. The current resident has it offered for $250k. Housing and real estate prices are plunging. He has a good friend who consults with Sears and the expectation is that SHLD could file bankruptcy any day (Short Seller Journal subscribers were shown this idea on April 2, 2017 at $11.49 – it’s been as low as $6.20 since then).

It’s not just Illinois. The entire system is crumbling beneath the surface. As long as the mainstream media isn’t reporting the truth, the “truth” can’t be that bad, can it? The truth is worse than any of us can possibly know.

There’s a 1%/99% in this country that’s different than the assumed meaning for that term. For 99% of the population, economic reality and systemic truth has been covered up and kicked down the road for so long that this segment of the populace is willing to believe there may well be a such thing as a “free lunch.” To 99%’ers, it’s inconceivable that the grim-reaper could or ever would show up to collect. Of the 1%, a small percentage not part of the insider elite can see most of the truth and can imagine that the whole truth is far worse than what can be perceived from publicly available information. The balance of the 1% are the insiders.

I stated in 2003, after watching the tech bubble collapse and the housing bubble inflate, that the inside elitists were going to keep the system propped up with printed money and easy credit until they had swept every last crumb of middle class wealth off the table and into their own pockets. I also said that nation’s retirement assets would be last crumbs remaining. Enabling pension underfunding is another form of debt used to confiscate wealth. That’s why the catastrophic underfunding of pensions was allowed to persist.

For purposes of my analysis, anyone who does not have enough money in the form of cash in hand to buy a Federal politician or buy the direct phone number to the Oval Office is “middle class.” There’s plenty of douche-bags running around with assets worth 8-figures but they don’t have enough spare change to buy their way in to the elitists’ card game.

We are at the point where the last crumbs are being swept off the table. It looks like Illinois will be the first to fall but there will be several others that follow. Part of the motivation by the Fed/Government to hold up the stock market like it has been doing is to keep the big State pension funds propped up for proper looting – like a prize-fighter being held up under the shoulders after passing out in order to deliver more punches to the face.

I suspect the time at which the system will be allowed to collapse is not too far off. The only question for me is whether or not the “Mad Max” scenario engulfs the country before the outbreak of World War 3…

Make no mistake, the criminality and fraud of most, if not all, DC politicians that is being exposed now is also occurring in corporate America and at pension funds, especially with regard to fraudulent financial reporting. As an example, Exxon is now being investigated by the SEC over its asset valuation and accounting practices. The same concept can be applied to pension funds (public and private). The Dallas Fireman and Police Pension fund is the postcard example of both investment and accounting fraud: LINK.

The pension time bomb has been activated for a long time but it’s now in the final countdown. Pensions are woefully underfunded even if we give them the benefit of doubt on their current use of market-to-market. Every pension fund under the sun in this country – because rates are so low – has monthly negative outflows of cash: beneficiaries are being paid more money than is flowing into the fund. If the stock market declines more than 10% for an extended period of time, nearly every pension fund in the country would blow up. This is why the last two stock plunges, which took the S&P 500 down over 10%, were met by heavy, if not blatant, Fed intervention which produced a steep V-bounce in the stock market both times.

Yesterday I spoke to a friend/colleague who works at a public pension fund. He said the latest fad in pension management land is to shift money out hedge funds – which are woefully underperforming the market – and to put even more money into private equity funds. This allows the pension funds to subject that capital to a quarterly mark to market test rather than an daily or monthly valuation accounting. The only problem: private equity investments are highly illiquid and the valuation of the underlying investments is an “art” that is not at all based on actual market transactions. This private equity investment mark-to-market “Picasso” leads to extreme “over-marking” of private equity investment valuations at pension funds.

This is also one of the primary reasons that the Fed can not raise interest rates even if it were true that the economy was improving and the labor market was tight, both conditions of which we know are not even remotely close to accurate but everyone seems content to play along with the joke.

Many pensions have now allocated as much as 20% of the fund to private equity. This is because they can control to a degree where the investments are marked and as long as the stock market does not decline, they never have to market them down. But with the example of the Dallas pension fund above, if the beneficiaries are allowed to withdraw all of their money, the fund will have to unload its illiquid private equity investments to meet the outflow requests. Good luck getting anything close to where those investments are marked in the fund. The beneficiaries won’t receive anything close to the current stated value of their pension account.

If the status quo in the markets were to continue for the foreseeable future – which it won’t – pensions funds will run out of cash to pay beneficiaries well in advance of the “foreseeable future.” Without cutting benefits drastically or, in the case of public pension funds raising taxes steeply to cover pension beneficiary outflows, some public pensions will hit the wall within 12-24 months.

Away from private equity investing – which is just another of the many asset bubbles spawned by the Fed’s near-zero interest rate and money printing policy (by the way, the Fed unbeknownst to many is still printing money) – Wall Street has been busy stuffing a plethora of high-fee generating asset-backed “investment” securities into the market. These securities exploit the need by pensions to generate much higher investment income. When you hear the term “reach for yield,” think: pigs are greedy, hogs get slaughtered. These securities are hog food.

The only problem is that interest rates are so low now the risk embedded in the underlying asset pools are much greater than the interest rate compensating the investor for buying these securities. Ratings agency fraud is also present again. This is another instance of the current period of financial insanity “rhyming” with the Wall Street-fueled insanity that led to the 2008 financial collapse.

A perfect example is the latest “brain child” of Wall Street in which the payables from cell-phone bills (the mobile carrier’s receivables) are packed into pools and securitized into “bonds” – LINK. Verizon is the first to do a deal like this. It’s receivables from cell-phone bills were packaged into bonds, received a triple-A rating and were priced at 55 basis points over the benchmark triple-A corporate index. That means it was issued around a 2.67% yield.

Think about this way, would you lend money to a stranger to pay his cellphone bill in exchange for receiving the amount you loaned plus receive a 2.67% annualized rate of interest on the loan next month? There’s a reason the bonds were priced at 55 basis points over standard triple-A bond. If the implied reason were apparent to all, the bonds would be yielding substantially more. Eventually that reason will come to light and the bonds will tank in price.

The Dallas police and firemen had the right instinct: if you are eligible, contact your pension administrator and demand to receive any pension money that can claw out of fund now. Your alternative is to face substantial payment cuts at some point. Eventually your fund will collapse and you will otherwise receive nothing more than an “Oops, Our Bad” letter from your pension fund.

The Open Interest in silver is close to the new all time record high – set just last week – and gold’s Open Interest is at the same level as 2011 when gold hit it’s all time high in value. As you know the acquisition cost of gold is about $600 less than in 2011 which makes the Open Interest all the stronger. What will it be when gold really starts moving again?

In this episode of the Shadow of Truth’s Market Update, we dig into the signals being given by the market which indicate that the silver manipulation scheme is becoming unmanageable. In addition, we discuss the ongoing global systemic financial and economic collapse.

That [the unchecked market intervention by the Fed] will never change, Bill. Here’s what will happen: 99.5% of the public will NEVER believe that gold is the solution and they don’t even care if it’s manipulated. But when the point in time occurs when it becomes obvious to most that they have to have gold to stay afloat, it will be too late. There will be LOOONG lines around the block at coin shops. People in the front of the line will be able to sell some of their gold and silver to people in the back of the line for DOUBLE the price they just paid. It will be similar to the Weimar Republic when someone would order a cup of coffee, drink it, order another one and the 2nd cup was twice as expensive as the first. That day may not be far off. – my email exchange with Bill “Midas” Murphy of Lemetropole Cafe

If it’s not obvious to anyone by now, then those “anyone’s” are not following the news. All private-sector sourced economic data is showing an economic collapse in progress. The exiting home sales data is not private – it’s quasi-Government because the statistical seasonal “adjustments” programs used by the National Association of Realtors is the same algorithm used by Government statistical magicians.

Just take a look at the list of headlines in Zerohedge this morning – this is not a product of “conspiracy theory” website – it’s the economic headlines listed in one place:

Those headlines show the truth in one line-up. I can guarantee you that nearly every mainstream media source of business news will not list those reports today in one place and the reports themselves will be nothing but mangled propaganda and spin.

I suggested a couple months ago that auto sales would start tanking hard this summer. The statistical pool of humans who can fog a mirror and do a “sign and drive” for a car loan that exceeds the value of the car has been largely used up. Maybe if the driving laws are changed to enable anyone over the age of 12 to drive, the Fed/Govt can kick that can further down the road.

I want to focus on the last two bullet points because they are the most revealing about the degree of rot beneath the elitists’ schmear of mascara that’s being applied heavily to cover up the truth.

Wall Street banks are usually the last segment of the business world to fire staff. We’ve already witnessed many major GDP sectors unloading payroll: manufacturing, energy, retailing, auto OEMs, etc. A friend of mine drove to Utah this past weekend and saw miles of rail freight cars sitting idle on the tracks. Rail freight activity is like the “nerve center” of an economic life-system. It directly reflects the relative degree of activity at every level of the economic model from raw material transport to finished product distribution. If rail cars are sitting idle it means economic activity is sitting idle – supply creation and demand usage…at every level in the “food” chain.

The point here is that, if Wall Street is chopping heads, it means that not only has economic activity ground to halt, but the crystal ball perma-bull forecasters deep inside the banks do not see any hope of renewed business activity in near to intermediate future. Banks like Goldman will do anything to stir up financing activity. If financing activity can’t be jolted from the corpse, then it’s time to bury the corpse and get rid of the grave-diggers.

What’s astonishing is that after that line-up of news hit the tape, the S&P 500 initially dropped down over 9 points but since then has “rallied” back to nearly flat on the day. How is this at all possible unless the Fed is in there preventing the inevitable? The intervention has become absurdly obvious. I’ve concluded that one of the primary drivers of the need to keep the stock market from collapsing is the pension problem.

A friend of mine did an exhaustive, in-depth study of public pension funds. He concluded that if there’s a 10% decline in the stock market for any sustained period of time, every pension fund will collapse. The Central States pension fund manages the Teamsters pension in several States. The S&P 500 is near an all-time high and every other primary asset has been inflated by the Fed to historical levels and this pension is still collapsing. That’s just a “sniff” at how bad the problem really is. The State of Illinois public pension fund is one of the largest in the country and it’s on the verge of collapse.

I was chatting with him about the cash inflows and outflows at his particular fund, which theoretically is not “underfunded” (but it really is). I was stunned to learn that outflows exceed inflows every month and they have to sell assets every month to fund beneficiary payments. This is because, in order for the fund to achieve cash flow “neutrality,” it needs to generate an 8% ROR. Even though we’ve had 7 years of Fed-driven stock and bond price appreciation, all of these pension funds are still underfunded. Last year the returns were flat to down. Every year that returns are flat to down, every fund with an assumed 8% (some are set at 7.5%) hurdle-rate for cash flow neutrality goes in the hole by 8%.

This is why the Fed has to do whatever it takes to prevent the stock market from tanking. Yesterday was a prime example. The S&P 500 was down about 11 points with 45 mins left in the trading day. By the close it was down only 2 points. The Fed pushed it up in a 45 degree angle to positive territory but a flood of sell orders hit the tape with about a minute left. The Fed couldn’t keep the index green but it was a “victory” nonetheless. The market took back the other nine points going into today’s open, but the Fed has managed to push it back to largely unchanged from yesterday’s close.

I don’t know how much longer the electronic trading systems will tolerate this degree of intervention. We do know that the Fed “unplugs” some of the electronic trading platforms when sell orders flood down those HFT “pipes.” Notice how the market never “breaks” when the buy orders flood those very same “pipes.” Funny thing, that.

The U.S. financial and economic system is a Ponzi scheme of unprecedented size. The media will have you believe that China is the problem. But it’s not. The real problem is the powder keg of fraud and corruption that underlies the United States. The lit fuses protrude from every nook and cranny of the system. It’s impossible to know which fuse will hit the powder and when. But there’s no doubt that it will come from a source that no one anticipates – not even “them.”

There has been no improvement in underlying consumer liquidity conditions. Correspondingly, with no fundamental growth in liquidity to fuel increasing consumer activity, there is no basis for a current or imminent recovery in the housing market. – John Williams, Shadowstats.com

The title quote is from a supplier to the homebuilding industry in south Florida, which had been one of the hottest housing markets in the country. He said his business has suddenly fallen off a cliff and development projects that had “been on the board” have been postponed indefinitely. Isn’t it a lot better to get information about what is going on at “ground zero” in the housing market rather than from some snake-oil salesman who bills himself as the National Association of Realtors’ chief economist or the sleazeballs on the financial “news” networks?

Make no mistake about it, regardless of the degree to which you want to put faith in the “seasonally adjusted, annualize rate” home sales reports generated by the National Association of Realtors and the Census Bureau, the housing market is a 10 mile train skid on a nine mile track.

Something is blowing up big time in the banking system. Everyone is talking about the interminably collapsing price of Deutsche Bank stock, but Bank of America, down only 2% right now, was down as much as 6% earlier today – same with Citi. The price plunge in these banks occurred in absence of any news reports or events that to which the sell-off could have been attributed.

The BKX bank stock index is down 25% from its high in mid-July:

While the entire U.S. financial media/community seems to be obsessed with the sell-off in Deutsche Bank stock, I’ll note that Barclays stock is down 50% from its 52 week high and Citigroup and Bank of America are down over 33% from their 52 week highs. Because of the incestuousness that has developed in the monstrous derivatives market, all of these banks are genetically connected. It’s really irrelevant which bank blows up first because when one goes, they’ll all go.

I am tying together housing and the big banks because the Central Bank money printing has reincarnated the housing bubble Frankenstein and the big banks – via the catastrophically massive Ponzi derivatives scheme – have been the transmission mechanism of printed money into the housing market.

The unexplained 25% collapse in the bank index is telling us that the financial system is melting down and that’s the most direct evidence that it’s not just a Deutsche Bank problem. Perhaps DB is merely 2016’s “Bear Stearns.”

The entire global financial system, including and especially the U.S., is headed for a collapse that will be worse than what occurred in 2008. In fact, it will be nothing more than an extension of an unavoidable collapse back then that was deferred with QE and Taxpayer money. The concerted Central Bank move to take interest rates negative are telling us that the QE rabbit is no longer available to pull out of the hat. Negative rates are telling us that the skidding train mentioned above is on the 9th mile of that skid.

A colleague of mine called me today and told me that he’s been monitoring the housing market activity on the west coast of Floriday, a previously white hot housing market. He said inventory is up about 15% from year end he is getting a constant flow of “price reduced” emails. I am seeing the same thing and getting the same number of “price reduced” emails from the MLS-based website I use to track the Denver market. And a reader posted this comment yesterday about Las Vegas, which also had been red-hot market for home sales and buy-to-rent schemes:

Supply is building quickly (no pun intended) and sales are in the toilet. Housing in going to be one of, if not the lead horses that take this economy down. A friend of mine who lives in L.A. and lives in Vegas 3-4 days per week for business, just rented a furnished luxury two bedroom condo with all utilities including cable and internet for $1250 per month. He also said that there were many choices available in the Las Vegas area. We are just at the beginning of the end.

I am impressed, you answered very promptly even on a busy day; Thank you for the note and the consideration of timing on my sign up. I appreciate both! I’m also already pleased with the value of your service. – Comments from two subscribers to the Short Seller’s Journal

The S&P 500/Dow have started to sell-off relentlessly since the beginning of the year. This morning’s excuse was IBM and, once again, China. I guess Obama’s “America is exceptional” speech infected the brains of more people than I thought. The sell-off in the stock market surely can’t be attributable in any small way to the fact that the U.S. stock market never been more overvalued in its history. Not only is it trading at record valuation levels, the “value” of the stock market is resting on a mountain of debt and derivatives in the U.S. financial system of unprecedented size and diminished credit quality.

Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief. – William White, form chief economist of the BIS – LINK

Unpayable debt and counter-party defaulted derivatives are the hidden financial bombs that are beginning to detonate both globally and in the United States. Faux analysts like to point to the fact that consumer debt is lower now than in 2009. However, the reason the amount of stated debt declined was a result lender write-offs – not consumers repaying any debt. Now automobile and student loans are at all-time highs – over $1 trillion outstanding now in each. Unlike mortgage debt, this debt is largely unsecured (cars are collateral that depreciate quickly in value).

Who am I to question Ray, but he’s got it wrong. The mistake embedded in his assertion is that economic activity is currently connected to the massive global financial bubble. Sorry Ray, but if you use unmanipulated data, the world is already in an economic depression. The price of oil, the baltic dry index, the Cass shipping and freight index (LINK a volume-based index down almost 20% since 2013), etc – measurements of actual economic activity – are reflecting a level of economic activity globally and in the United States that is suggestive of a deep recession on Main Street.

I’ll say we are in trouble up here [Canada]. Aside from the obvious, oil and the Canadian dollar crashing in unison, we have a seriously over-priced housing market and a totally unsustainable condo boom in our two largest cities. Alberta is an unfolding disaster and, for all intents and purposes, the largest province by far Ontario, is bankrupt. Superimpose on that a neophyte federal government and a totally clueless central bank head and we are headed for very big trouble. At least gold is $1575 in Cdn. Dollars and will explode higher shortly. – John Embry in an email exchange with IRD

The error in Dalio’s assertion is that financial assets drive economic activity. The “wealth effect.” Unfortunately, while record hedge fund management fees might determine whether or not Mr. Dalio decides to bid on the latest Picasso up for auction or buy a new Ferrari this year, the majority of wealth accessible to most humans has nothing to do with the current price of AMZN or the dividend paid on KMI. The “wealth effect” concept is yet another Keynesian rhetorical diaper wrapped around the mechanism by which the elitist suck wealth from the middle class.

Real Main Street economic activity has been receding since 2008. The illusion of economic “growth” has been created by issuing more debt used by the hoi polloi to buy cars, unaffordable homes and online college degrees. At this point in time, the relative trading level and correlation of financial assets has nothing to do with economic activity, other than maybe the ad rates that can be charged by the adult Nickelodeon channels: CNBC, Fox Biz and Bloomberg. This chart perhaps best illustrates this point – click to enlarge:

This graph on the left plots Kinder Morgan stocks vs. the S&P 500 for the last two years. KMI here represents real economic activity because its business is based on the price and demand for oil. Even if you want to argue that KMI has take or pay contracts, if its customers can’t pay, KMI does not “take” revenues. It’s no coincidence that KMI’s stock has crashed along with the price of oil (and gas). The misnomer of “Dr. Copper” is that it should be “Dr. Oil.” After all, for every pound of copper used it takes energy to mine that copper. For every product produced with copper, it takes energy to produce that product. For every copper-embedded product purchased, it takes energy to deliver to that product. Get it?

It’s the human condition to believe irrationally that bad things can’t happen. Denial and hope are the two strongest forms of the human emotional defense mechanism. But bad things are starting to happen. The price of oil is telling us that the world, including the U.S., is already entering an economic depression.

Referring back to that graph of KMI vs. S&P 500, KMI represents the “poster child” for the U.S. economic system. KMI is loaded down with debt that will eventually become unpayable, some of it possibly by this fall. It’s also emblematic of the proverbial stock idea that was supposed to be “can’t miss.” It paid a huge dividend and it’s business model was “safe.” But KMI’s operating income has plunged 45% from Q3 2014 to Q3 2015. How on earth is that reflective of a stable business model?

KMI is somewhat of a Ponzi scheme. It relies on generating growth to fuel bullish stock reports and investor interest. It relies on an unfettered ability to issue debt in order to pay its dividend. I’m working on a big research report and you might be surprised at my conclusions. Kinder Morgan stock has already decimated a large number of investor portfolios. And yet, the indefatigable bullishness on the stock coming from the “it’s too cheap to sell” or “opportunity of a lifetime” CNBC zombies continues to blossom.

The orange line in the graph above is the S&P 500. You can see just how disconnected the real economy, as represented by KMI stock, is from Ray Dalio’s “financial assets.” And you can also see that the real economy is headed for a depression. In other words, it’s too late to worry about whether or not correlation among financial assets will cause an economic problem. “Financial assets” are a creature of Wall Street. The real economy is a creature unto itself and adheres to natural laws uncorrelated with Wall Street’s money-making gimmicks. Sorry Ray, but eventually your “financial assets” will be inextricably correlated with the real economy.

People want to believe that bad things don’t happen. But the laws of nature don’t care about what people want to believe. These laws are not necessarily correlated with human faith and bad things are about to happen out “there.”

If you want to hedge yourself against what is coming, subscribe to my Short Seller’s Journal. Homebuilder stocks are getting hammered this week and I will be featuring two ideas connected to homebuilders that have not been sold down hard yet.

Well, in truth, we had a de facto collapse in 2008 which was addressed with $4 trillion in QE and, ultimately, a few trillion in Taxpayer subsidies. The proverbial can was kicked down the road in order to enable the insider elitists to continue looting as much wealth as possible from the system. A fractional reserve banking system will always eventually collapse. The fraction of reserves is allowed to become smaller over time and the amount of unpayable debt balloons to the point of explosion.

I would suggest that the massive debt implosion about to happen in the energy sector will be the trigger point for a collapse that can’t be prevented this time.

With that in mind, Zerohedge reposted a Reuters article which is reporting that the Italian banking system is collapsing – LINK. What’s that got to do with the U.S. financial system, you might ask? Derivatives. Every single big bank in the world is interconnected through the insidiously toxic international web of OTC derivatives.

Someone will lose big on Italian credit default swaps and not be able to pay their counterparty. The counterparty may have offloaded some of that risk and fail to stand as a counterparty on the risk it laid off. And so on down the line. The banks themselves do not know the extent of true counterparty risk exposure. Internally employees lie to risk managers. Risk managers knowingly and unknowingly lie to the board. The CEO then knowingly and unknowingly lies to the Fed and other Central Banks about that bank’s specific derivatives exposure. I witnessed this first-hand in the 1990s’ when derivatives were just beginning to blossom as a wealth-extracting device for Wall Street.

I bring all this up because one of Bill Murphy’s readers sent him a letter that should, at the very least, raise the hair on the back of your neck. I emailed Bill, with whom I communicate several times per day every day and asked him about the credibility of the person who submitted this letter: “Well written, little drama, just input. I couldn’t make up a story like that. This is just a regular guy ho believes our story and follows you too. No reason for him to send this except to point it out. If I thought a bit bogus, I would never have run it. No reason for the girl to make that up and, of all people, one of the Koch brothers.”

This email from a fellow Café member will catch your attention. It is edited to keep the identity of the sender private, but the essence of what was presented is striking…

Bill, I have been working in a chemical plant and have been there for 39 years. We have about 400 people working at the site. I can’t talk to anyone about what is going on with the financial system because nobody wants to hear any of this, they either don’t believe it or their eyes glaze over and they change the subject. I gave up trying to tell people what is coming years ago.

There is one man at the plant that knows what is going on with the worldwide financial system. He is the production superintendent for the plant, reports to only the plant manager, I have two supervisors between him and myself. Last night he called me about 8pm, which was very unusual because we normally stay in touch through email or sometimes, very seldom though, he comes to the unit I work in and we discuss what is going on at that time. His daughter works for Koch Industries in Wichita in marketing. She called him yesterday and told him they had a meeting with one of the Koch brothers giving the meeting. He came out and told his employees that we were about to go into unprecedented times. He said that their company was cash rich and they would be able to ride out the coming storm. One of her coworkers asked if we were going to have a recession or a depression. Mr. Koch answered that no we were going to have an economic collapse with a 40% devaluation of the dollar. I know you know who these Koch brothers are, with the money and inside connections they have wouldn’t you presume they have inside information.

My superintendent’s daughter told her father that Mr. Koch sounded just like him with the speech he gave, because her father has been telling his 2 daughters for years to get ready for the collapse and they have. My job allows me to read probably 11 hours a night when I work days and on weekend days. I started researching our financial system in 2008 because of what went down back then. It is totally amazing to me now that we have a system that is totally manipulated by TPTB constantly and people don’t have a clue about what is really going on. We really do live in the Matrix. R

Time will tell if this information proves to be prophetic. Someone asked me today if I thought a collapse was right around the corner. I answered that, with the enormous effort being exerted by the Fed and other western Central Banks to keep the system from collapsing, there’s no way to know with any reasonable degree of accuracy. But I said that I would be surprised if the system makes through 2016 intact.

Remember the economic catch phrase, “when the U.S. sneezes, the world catches a cold?” The idea being that the U.S. is the economic engine of the world and if the U.S. economy tanks, the global economy tanks. The current “vogue” in the financial media is to blame the incipient melt-down in global stock markets on China’s move to devalue its currency.

But nothing could be further from the real truth. China’s devaluation process may well be the proverbial “straw breaking the camel’s back.” However the real causation of the global economic meltdown is a result of the world’s fiat-currency-based Central Banking system losing the ability to control the natural market forces which are acting to destroy the financial market bubbles and economic excesses that have been allowed to breed since the dollar became the global reserve currency.

The reasons that the U.S. stock market looks like it may be starting to collapse are both simple and complicated. Craig “Turd Ferguson” Hemke of the TF Metals Report and I discussed some of the real factors which have conflated to “prick” the global financial/economic bubble: stocks, bonds, real estate, derivatives, paper currencies – anything connected catastrophically to the global paper fiat currency “Frankenstein” that was born with the Bretton Woods Agreement in 1947.

This graph is part of our conversation in which we discuss why the sell-off in the U.S. stock and credit markets may be attributable to an unwinding of the yen/yuan carry trade – which no one on Wall Street/CNBC/Bloomberg/etc has mentioned:

Note that the yen has appreciated significantly more than the dollar vs. the yuan since China’s currency deval began. How come no one on Wall Street is discussing this?

My latest issue of the Short Seller’s Journal will be released Sunday evening. You can subscribe by clicking here: Short Seller’s Journal This week will feature a section which outlines a strategy and the pros/cons for using put options to replicated shorting a stock.

It’s days like today that will keep the muppets invested as we keep going down. – Jim Quinn of The Burning Platform in reference to Thursday’s stock market moon-shot

Well, I was wrong. I was predicting that the Census Bureau would engineer a miraculously positive retail sales report for December. As it turns out, the CB is admitting to a .1% drop in retail sales for the month. The question begs, then, just how bad were the real numbers? They also are purporting that November retail sales rose .4% instead of the .2% originally reported. Unfortunately for the Government, all of the privately produced retail sales metrics during November showed large declines in retail sales during the month. No, Virginia, the impressive percentage gains in online sales do no offset the decline in brick/mortar sales – online sales activity is about 7% of total retail sales. The Consumer is tapped out which means the U.S. economy is tapped out. But we should blame China, right?

In addition, the NY Fed general business conditions index registered a stunning collapse to -19.5 (vs. -4 expected). This is the lowest reading on this index since the Great Financial Crisis Collapse in 2008/2009. This graph shows both the Philly Fed and NY Fed economic activity index readings. Does this at all look like the economy that Obama told us the other night is doing fine? (Source: Bloomberg News)

NY Fed President Bill Dudley was out today announcing that negative interest rates would be considered if the economy continues to slide. Negative interest rates are another form of QE. QE is a politically/socially correct term for money printing. “Money printing” is the code for “BAIL OUT THE BANK AGAIN.”

The price of oil is collapsing. I predicted in the fall of 2014 that the price of oil would hit the $20’s. The price of oil is collapsing because collapsing economic activity globally, especially in the United States, is causing a collapse in demand. For get “Dr. Copper.” The real barometer of economic health is oil. Copper is used in a lot of manufacturing applications, but oil/energy is used to mine and refine copper and to manufacture and deliver copper-based products. Oil is the root indicator of economic activity. Oil is the real “Dr. Copper.” Everything else is a derivative of oil. Think about that for a moment…

It seems to never end. The markets do the opposite of what would be expected based on common sense and on undeniable evidence about the fundamentals. Just this morning, for instance, the S&P 500 pops up overnight and then promptly goes red after the NYSE opens. Then one of the Fed sock-puppets makes a comment about oil bottoming and the S&P 500 takes off like Roman candle. Overnight gold was also up about $4. A report hit the tape that some of the ECB members wanted more money printing. Money printing is a fundamental event that should send gold inexorably higher. Instead, gold was slammed $10 as soon as the news item hit the tape.

This drool that is served up from the policy makers and political leaders in the U.S. is nothing short of a laughable insult to our collective intelligence. But, then again, it would seem that this country has slid down that slippery slope into idiocy. I received this email from a colleague who is an investment advisor. He’s one of the few that understand what is happening in this country. Clearly his clients have been mesmerized by the clown show:

I can’t tell you how many times I have been in meeting with investors and explained common sense truths, only to have their eyes completely glass over. Usually, they immediately proceed to ask me about Amazon, Netflix, Apple and Google. People really are that clueless. One of my clients, that owns PHYS, told me he really didn’t want any more than 10% gold and wanted me to look at cloud computing stocks.

I had another client leave me recently because we had an allocation to gold, cash and stocks. They went to Fidelity and purchased 4 growth funds and long term bonds. They told me that Fidelity was a bigger company and they were bullish stocks. I laughed myself to sleep that night and watched their account fall 8% the first week of 2016.

It is totally insane how clueless your average person with investable assets is. I can’t even imagine how insanely ignorant the people that are that live paycheck to paycheck. It’s truly scary because those people really and truly believe it’s the rich that keep them poor and they believe the government is their only ally.

When the day finally comes that gold is recognized as real money your average person is going to be totally shocked. I have a feeling they will blame everyone and everything other than themselves and the good old government.

The hardest part about being a retail advisor is when you first understand that people, even smart people, can’t accept that their beliefs are misguided. People will take it hard when it happens.

I leave you with a final quote I heard years ago: “If what you knew to be true turned out not to be true; when would you like to know about it.” Unfortunately, for most people, they only want to know when it is too late!

Jim Quinn, of The Burning Platform, with whom I often share email chuckles over what’s unfolding in this country, has written a concise commentary titled, “Maybe Valuations Do Matter,” which encapsulates the essence of the madness into which our system has lapsed:

I wonder if the brainless twits and shills on CNBC will be telling their audience that the S&P 500 is now lower than it was in May 2014. That’s right. Anyone in the stock market over the last 20 months hasn’t gained a penny. The S&P 500 is now down 11% from its all-time high in May 2015. Only 40% or 50% more to go to reach fair value.

He concludes that that the stock market needs to drop at least 50% to be fairly valued. I have not had a chance to probe him on this, but I suspect his non-public number is closer to my number: 80%. We were on that path in 2009 until the Fed and Obama bailed out the banks in order to enable them to continue sucking wealth out of the system.

The latest contrarian editorial “vogue” is to refer to the recent .25% nudge in the Fed funds rate as “a policy mistake.” Sorry, that’s not even remotely close to the truth. The policy error committed in this country was preventing the markets in 2008/2009 from doing what they will eventually do anyway. And EVERYONE will end up paying for that mistake.

Out, out, brief candle!
Life’s but a walking shadow, a poor player
That struts and frets his hour upon the stage
And then is heard no more: it is a tale
Told by an idiot, full of sound and fury,
Signifying nothing. (Macbeth, Act 5 scene 5)